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Subject: Re: Engineering Envy [was: Re: CL and UML]
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From: Erik Naggum
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Organization: Naggum Software, Oslo, Norway
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Date: Sat, 14 Jul 2001 16:37:47 GMT
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* Kent M Pitman
> But a simpler argument prevails from the purchaser's point of view. Hope
> is not based on rationality, but on belief. For the $1 purchase of a
> lottery ticket, they walk around all day with the hope of being a
> millionaire, almost independent of the oddsd. There is likely no other
> item you could sell them for a buck that would give them this kind of
> hope, so even if they never win, they have been afforded extraordinary
> value for their dollar.
However, this artificial hope depends on the ignorance of the purchaser.
For instance, I have absolutely _no_ hope attached to a lottery ticket.
On the other hand, I do have "hope" attached to insurance: I know that I
will not be devastated financially by a disaster, should it happen with
the same likelihood that I would win the lottery. The effect of owning a
lottery ticket is likely the continuation of my current lifestyle, since
I do not win. The effect of having insurance is likely a continuation of
my current lifestyle, since I do not _lose_ everything should a disaster
happen. However, if I do not buy the lottery ticket, the likelihood of
continuation of my current lifestyle is marginally _increased_: I do not
have to deal with the changes coming from winning the lottery. If I do
not purchase the insurance, the likelihood is marginally _decreased_: I
may have to deal with the changes coming from losing everything in a
disaster. Insofar as planning goes, lottery tickets are just as high
risk as disasters. I do not want disasters to befall me, and for the
exact same reason, I do not want to win millions of dollars in a lottery:
Both would upset my plans tremendously. If the disaster would not upset
my plans noticeably, I do not need insurance. If they lottery payout
would not alter my plans, I do not need the ticket, either. In which
case, it would be a sheer waste of moeny to play the lottery, and a
caculated risk to buy insurarnce or not.
Now, "the Norwegian Dream" is, in quite amazing contrast to "the American
Dream" or "the Swedish Dream" or "the German Dream", etc, is to win big
in the lottery. The Norwegian population buys many times more lottery
tickets than the next civilized country. I guess this is becausae as a
nation, we are still quite poor, but we found this lottery ticket on the
ocean floor which returned the multitrillion-dollar prize: _oil_. (Worst
thing that ever happened to this nation, if you ask me.) People in this
country to not expect to get rich through work, they expect to get rich
by winning something or other by chance. Those very few who managed to
beat the Norwegian attitude and make real money are despised and loathed
by the population in general. Lottery winners are, however, regarded
with very positive eyes. Lots of advertising exclaims that "Lotto
millionaires are not like other millionaires", and they show people who
have spent their money extremely unwisely on something rabidly idiotic.
Quite entertaining though they may be, they tell a sad story about the
people who buy lottery tickets and the Norwegian attitude to money.
> Finally, all these analyses of possible return amaze me. If you win big,
> the lottery pays out over 20 years, at least here. In effect, they are
> paying 5% per year--i.e., the interest. They aren't giving you the
> principal. They still have the money you won at the end of the 20 years.
This is grossly oversimplified, Kent. The real value of the principal is
(roughly) maintained _because_ of the compounded interest. If you give
away the interest, you give away that much of the principal's real value,
both in comparison to what you would have gotten for it if invested
elsewhere, as well as through inflation of the money supply and other
loss of value of your currency relative to the goods you might want to
exchange for it. If you manage to get 5.5% interest on the money, you
will have the same number of dollars at the end of the 20 years as when
you started, while having given away one million dollars a year. Suppose
you have 2.5% annual decrease in real purchasing power during the same
period, meaning that you would have to have almost 33 million dollars in
20 years to have the same buying power, you would need to get a 7% annual
return on investment on those 20 million to "keep the money" while giving
away 1 million dollars a year. If you manage to get 7% interest but did
not give the money away, you would have had 77.4 million dollars after 20
years, which means that you have _actually_ given away 44 million dollars
of real value at the end of those 20 years, but the poor idiot who got
the money only received 20 million dollars that were probably spent each
year for an ever decreasing number of real goods. If saved, it would
probably maintain its total purchasing power after 20 years, but then you
would have gained nothing in the interim, which would be dumb, so let the
winner spend $500,000 adjusted for inflation every year. After 20 years
with 3% inflation he would have about $10M left and could keep going
through his cash like that for another 10 years. With more modest
annual spending, the money could very well last for the rest of his life.
> After that, they can "give it away" again.
As I think I have demonstrated, that would require inordinate financial
ability and would _not_ happen automatically. In other words, for a
lottery to make money over time, it needs to keep a fairly large chunk of
the money it continues to receive for lottery tickets to fulfill its
obligation to continue to pay past winners. The way these things are
run, they are essentially betting on there being enough future fools to
pay for past winners. If they had had the financial savvy to maintain
the value of their money, they would have found better ways to spend the
prize money than give it away to lottery winners. All in all, it is a
rip-off from start to finish, and the likelihood it will survive and all
the winners will get their winnings to the last nickel is about as good
as social security being there for us in 50 years, which is just another
racket and barely-cloaked pyramid game run by ignorant politicians.
However, lotteries basically being a way of financing stuff that nobody
would finance if they knew what they were financing, it may be the only
way of getting your hands at a significant amount of money to promise to
give most of it away. If you are very, very smart and run lotteries on
the grand scale (like a government can do), you really can get away with
investing all that money you get from tickets and get more than 7% return
on investment, but then you need a _lot_ of surplus money. If you should
_ever_ default on your payment to your past winners, you will lose _all_
confidence and get no more money from any more lottery ticket buyers and
it does not take more than one of those incidents to rip you to shreds
and have lawyers down your throat. If you run a confidence game like a
lottery really is, confidence is your _only_ asset. The reason most
governments have strict controls on lotteries and prefer to run them on
their own is precisely that it is a form of calculated fraud. If only
people were happy to get a little hope in return for a buck, it would be
fine -- but the mere sight of a lot of people giving somebody a lot of
money in return for a few of them getting a lot of money back is like
waving flypaper in a roomfool of criminals. What would it take to rig
the game so somebody who is in on the game is guaranteed to walk away
with much less than the announced winnings and consequently help land
much more money in the hands of the lottery operator? Very little. In
fact, so little that the mere _intention_ of setting up a lottery is
criminal in most countries unless you obey a whole lot of laws and
controls. Yet, it is a breeding ground for criminals of all kinds. It
is absolutely no different from selling insurance and then going out of
business before ever paying any claims. Come to think of it, that _is_
the social security lottery.
> Not that I'm quite sure what any of this has to do with Lisp. But that's ok.
Gratuitous Common Lisp relevance: I computed all the above figures with a
few simple financial functions written in Common Lisp.
#:Erik
--
Travel is a meat thing.